MODULE II

Strategic Management

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A
SWOT analysis is a framework to help assess and understand the internal and
external forces that may create opportunities or risks for an organization.

SWOT ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Strengths and weaknesses are internal factors. They are characteristics of a
business that give it a relative advantage (or disadvantage, respectively) over
its competition.
▶ Opportunities and threats, on the other hand, are external factors. Opportunities
are elements of the external environment that management can seize upon to
improve business performance (like revenue growth or improved margins).
▶ Threats are elements of the external environment that may endanger a firm’s
competitive advantage(s), or even its ability to operate as a going concern
(think regulatory issues or technological disruption).

SWOT ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ TOWS Analysis is an extension of the classic analytics tool, SWOT Analysis.
▶ While SWOT analysis, puts the emphasis on the internal environment (your strengths
and weaknesses), TOWS forces you to look at your external environment first (your
threats and opportunities).
▶ It examines a business from an approach that references marketing and
administration.
▶ It helps you ask, and answer, the following questions:
▶ How can we make the most of our strengths?
▶ How do we circumvent our weaknesses?
▶ How can we capitalize on external opportunities?

TOWS ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Strength And Opportunity SO - SO or Maxi-Maxi strategy utilizes internal strengths to maximize or
optimally use external opportunities available to an organization.
▶ Strengths And Threats ST - ST or Maxi-Mini strategy maximizes the strengths of a business and
minimizes the threats using those strengths.
▶ Weakness And Opportunity WO - WO or Mini-Maxi strategy’s aim is to minimize weaknesses of an
organization and maximize opportunities. This strategy revamps internal weaknesses by using external
opportunities.
▶ Weakness And Threats WT - The WT strategy, also known as the mini-mini strategy, aims to minimize
threats and weaknesses. A TOWS matrix example will show that it’s a defensive spot in the matrix that is
utilized by businesses in adverse situations.
▶ Note: The WT quadrant – weaknesses and threats – is concerned with defensive strategies. Put these into
place to protect yourself from loss, however don't rely on them to create success.

TWOS ANALYSIS
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ When you have many factors to consider, it may be helpful to construct a
matrix to match individual strengths and weaknesses to the individual
opportunities and threats you've identified.

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Strengths
▶ Apple Has High Standards Of Products And Services, Which Makes It The Most
Trusted Brand
▶ It Can Be Differentiated By Its Strong Brand Image
▶ The Organization Has High Liquidity And Profitability Owing To Its Massive
Financial Strength
▶ The Supply Chain Is Highly Sophisticated And Innovative
▶ Premium And Efficient Products Guarantee High Sales, High Profit Margins And
A Loyal Customer Base

TWOS MATRIX EXAMPLE OF APPLE

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Weaknesses
▶ Prices Are High And Don’t Aim To Compete With Other Brands
▶ Range Of Products Is Narrow
▶ Products And Services Are Exclusive And Hence Non-Compatible With Other Brands
▶ Opportunities
▶ The Demand For Newer Electronic Gadgets, Especially Smartphones, Is Constantly Growing,
Irrespective Of The Prices
▶ Threats
▶ Competitors Keep Emerging And Challenging Apple
▶ Manufacturing Costs Are Constantly Rising
▶ Personal Computer Sales Have Fallen Which Has Affected Apple’s Market Share
▶ The TOWS matrix of Apple will put all these elements in the matrix to analyze each strategy of the
matrix.

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Dr. Bhumika Achhnani, FMS, Marwadi University
TWOS EXAMPLE
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ The VRIO framework is an internal analysis that helps businesses identify the
advantages and resources that give them a competitive edge.
▶ The VRIO framework is an acronym for the various measurements of success
that relate to your business. It includes value, rarity, imitability, and
organization.
▶ Identification is important with this framework because if you can’t identify
one of these variables it’s a sign that you should rethink some of the previous
steps or go back and do more research on the overall idea you’re analyzing.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Value: Value relates to the specific needs that drive your product/service and
the capabilities you provide. Some good questions to ask here are:
▶ What specific ability do you empower customers to take advantage of?
▶ What resources of value do you provide to customers?
▶ If you can’t determine the value provided by your organization, you need to
rethink the value you hope to provide and guide your resources towards that
goal.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Rarity: Rarity has to do with the availability of your resources and how
accessible they are to your competition. Some prompting questions for this
section might be:
▶ What hard-to-obtain resources do you have at your disposal?
▶ What unique capabilities do you provide?
▶ What part of your product/service has low supply and high demand?
▶ Rarity is important because, when mixed with value, it creates a promising
recipe for success. They are mutually important, however, because without
rarity it can be hard to capitalize on the value you possess.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Imitability: Imitability is similar to rarity but questions the ability of your
competition to imitate your solution within their own business model. It asks:
▶ What is the cost of duplication for your organization’s resource/solution?
▶ Is there anything similar that currently exists?
▶ If you’re struggling to identify the potential imitability of your product/service,
think of ways you can tweak it to increase its value and attach it to your brand.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Organization: The organization portion is an internal analysis of how your
business operates and is structured for success. Some good prompts for this
section are:
▶ Are there reliable workflows within your business that breed success?
▶ What management structures/systems are in place to ensure your resources and
advantages will be capitalized on?
▶ This is the final step in the VRIO framework and asks you to consider the
organizational factors that play into creating a sustainable competitive
advantage over your competition.

VRIO FRAMEWORK
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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 VRIO FRAMEWORK

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Dr. Bhumika Achhnani, FMS, Marwadi University
 SWOT Analysis VRIO Framework
▶ Looks internally at strengths and weaknesses ▶ Focuses strictly on internal metrics and
and externally at opportunities and threats. resources that influence your competitive
advantage.
▶ Helps assess future opportunities based on
your current positioning. ▶ Focuses on the positives that create a
competitive advantage and the things that
▶ Looks at the positive and negative portions of
could be difference-makers.
your business plan.
▶ Requires nuanced understanding of your
▶ Simpler, more approachable analysis.
unique value and competitive ecosystem.
▶ Is able to focus on resources that you possess
rather than general strengths, creating very
tangible solutions.

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ It can help prioritize the allocation of business resources to highlight your
unique value.
▶ It can highlight internal resources and advantages that would otherwise be hard
to recognize.
▶ Helps highlight the most important factors to creating and maintaining a
competitive advantage over similar organizations.
▶ Enables you to identify and prioritize your competitive edge.

VRIO FRAMEWORK ADVANTAGES

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Due to the cyclical nature of the competitive ecosystem, your unique value and
edge cannot be predicted in the long term.
▶ Only really accessible by established organizations. Many smaller companies
may struggle to define many of the key terms in the VRIO framework.
▶ Strictly looks inward at your resources and capabilities and does not analyze
exterior opportunities.

VRIO FRAMEWORK LIMITATIONS

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Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O MODEL OF ABOVE-AVERAGE
RETURNS
1. External Environments
General 1. Strategy dictated by the
Global external environments of
the firm (what
gal /Le

De
Industry
cal

mo c
opportunities exist in
liti

gra
Environment

i
these environments?)
Po

ph
2. Firm develops internal
So

skills required by

ic
cio l

om
Competitor external environment
cu

on
a
ltu

Environment
Ec
(what can the firm do
r

Technologi
Dr. Bhumika Achhnani, FMS, Marwadi University cal
about the opportunities?) 23

Environment
1. The external environment is assumed to possess pressures
and constraints that determine the strategies that would result
in above-average returns
2. Most firms competing within a particular or within a certain
segment of it are assumed to control similar strategically
relevant resources and to pursue similar strategies in light of
those resources

FOUR ASSUMPTIONS OF THE I/O

MODEL
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Dr. Bhumika Achhnani, FMS, Marwadi University
[Link] used to implement strategies are highly
mobile across firms
[Link] decision makers are assumed to be
rational and committed to acting in the firm’s best
interests, as shown by their profit-maximizing behaviors

FOUR ASSUMPTIONS OF THE I/O

MODEL
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Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O Model of Above-Average Returns
Industrial Organization 1. Study the external
Model environment, especially the
industry environment
The External Environment • economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of
firms in the industry

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 2. Locate an attractive industry
Model with a high potential for
above-average returns
The External Environment

An Attractive Industry Attractive industry: one whose

structural characteristics
suggest above-average returns

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 3. Identify the strategy called
Model for by the attractive industry
to earn above-average returns
The External Environment

An Attractive Industry

Strategy Formulation Strategy formulation: selection

of a strategy linked with
above-average returns in a
particular industry

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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 4. Develop or acquire assets and
Model skills needed to implement
the strategy
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Assets and skills: those assets

and skills required to
implement a chosen strategy
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Dr. Bhumika Achhnani, FMS, Marwadi University

 I/O Model of Above-Average Returns
Industrial Organization 5. Use the firm’s strengths (its
Model developed or acquired assets and
skills) to implement the strategy
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills

Strategy implementation: select
Strategy Implementation strategic actions linked with
effective implementation of the 30
chosen strategy
Dr. Bhumika Achhnani, FMS, Marwadi University
 I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment

An Attractive Industry

Strategy Formulation

Assets and Skills Superior returns: earning

of above-average returns
Strategy Implementation

Superior Returns 31

Dr. Bhumika Achhnani, FMS, Marwadi University

 RESOURCE-BASED MODEL OF ABOVE
AVERAGE RETURNS

1. Firm’s Resources 1. Strategy dictated by

unique resources and
capabilities of the firm
(what can the firm do
best?)
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?) 32
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 1. Identify the firm’s resources--
Model strengths and weaknesses
compared with competitors
Resources
Resources: inputs into a firm’s
production process

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Dr. Bhumika Achhnani, FMS, Marwadi University

 Resource-based Model of Above Average
Returns
Resource-based 2. Determine the firm’s
Model capabilities--what it can do
better than its competitors
Resources

Capability Capability: capacity of an

integrated set of resources to
integratively perform a task or
activity

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Dr. Bhumika Achhnani, FMS, Marwadi University
 FOUR ATTRIBUTES OF RESOURCES
AND CAPABILITIES (COMPETITIVE
ADVANTAGE)
Valuable allow the firm to exploit opportunities or
neutralize threats in its external

Resources and Capabilities

environment

Rare possessed by few, if any, current and

potential competitors

Costly to imitate when other firms cannot obtain them or

must obtain them at a much higher cost

Nonsubstitutable the firm is organized appropriately to

obtain the full benefits of the resources in
order to realize a competitive advantage 35
Dr. Bhumika Achhnani, FMS, Marwadi University
 RESOURCES AND CAPABILITIES
THAT MEET THESE FOUR CRITERIA
BECOME A SOURCE OF:
Valuable Co

Resources and Capabilities

re
Rare Co
Core Competencies
mp
Costly to imitate ete
nci
Nonsubstitutable
es
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Dr. Bhumika Achhnani, FMS, Marwadi University
 CORE COMPETENCIES ARE THE BASIS
FOR A FIRM’S

Competitive
advantage

Strategic
competitiveness Core Competencies
Ability to earn
above-average
returns
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Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 3. Determine the potential of the
Model firm’s resources and
capabilities in terms of a
Resources competitive advantage
Capability

Competitive Advantage Competitive advantage: ability

of a firm to outperform its
rivals

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Dr. Bhumika Achhnani, FMS, Marwadi University

 Resource-based Model of Above Average
Returns
Resource-based 4. Locate an attractive industry
Model
Resources

Capability

Competitive Advantage

An Attractive Industry An attractive industry: an

industry with opportunities that
can be exploited by the firm’s
resources and capabilities 39
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based 5. Select a strategy that best
Model allows the firm to utilize its
resources and capabilities
Resources relative to opportunities in the
Capability external environment

Competitive Advantage

An Attractive Industry
Strategy formulation and
Strategy Form/Impl implementation: strategic
actions taken to earn above 40
average returns
Dr. Bhumika Achhnani, FMS, Marwadi University
 Resource-based Model of Above Average
Returns
Resource-based
Model
Resources

Capability

Competitive Advantage

An Attractive Industry Superior returns: earning

of above-average returns
Strategy Form/Impl

Superior Returns 41

Dr. Bhumika Achhnani, FMS, Marwadi University

COMPONENTS OF Strategic
Competitivenes
INTERNAL ANALYSIS s

Competitive
Core Discovering Advantage
Competencie Core
s Competencies

Capabilities
Four
Criteria Value
Resources of Chain
• Tangible
• Intangible Sustainable Analysis
Advantages

• Valuable • Outsource
• Rare
• Costly to Imitate
42
• Nonsubstitutable
 Discovering
Core
Competencies

Resources
• Tangible
• Intangible

Resources are what a firm has to work Resources represent inputs into a firm’s
with--its assets--including its people and production process... such as capital
the value of its brand name equipment, skills of employees, brand
names, finances and talented managers

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 Discovering
Core
Competencies

Resources
• Tangible
• Intangible

Tangible Resources Intangible Resources

• Financial • Technological
• Physical • Innovation
• Human resources • Reputation
• Organizational

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 Discovering
Core
Competencies

Capabilities

Capabilities become important when they are combined in unique

combinations which create core competencies which have strategic value and
can lead to competitive advantage

45
 Discovering
Core
Competencies

Capabilities

Capabilities are what a firm does, and represent the firm’s capacity or ability
to integrate individual firm resources to achieve a desired objective

46
 Discovering
Core
Competencies

Core
Competencies

Core competencies are resources and capabilities that serve as a source of

competitive advantage over rivals
Core competencies distinguish a company competitively and make it
distinctive
McKinsey and Co. recommends using three to four competencies when
framing strategic actions
47
 CORE COMPETENCE AS A STRATEGIC
CAPABILITY
Resources Core Competence
• Inputs to a firm’s • A strategic
production process capability

Yes
Does it satisfy the
Capability criteria of sustainable
• An integration of a
The source of competitive
team of resources
advantage? No

Capability
• A nonstrategic
team or resource 48
The Basic
Value Chain M
g in ar
ar gin
M

Technological Development
Human Resource Mgmt.
Service

Firm Infrastructure
Marketing & Sales
Support Activities

Procurement
Outbound Logistics

Operations

Inbound Logistics

49
Primary Activities
 Outsourcing is the purchase M
of some or all of a gin ar
ar gin
value-creating activity from M

Technological Development
an external supplier

Human Resource Mgmt.

Usually this is because the
specialty supplier can

Support Activities
provide these functions Service

Firm Infrastructure
more efficiently
Marketing & Sales

Procurement
Outbound Logistics
OUTSOURCING Operations
Inbound Logistics
50
Primary Activities
▶ Improve Business Focus
▶ lets company focus on broader business issues by having
outside experts handle various operational details
▶ Provide Access to World-Class Capabilities
▶ the specialized resources of outsourcing providers makes
world-class capabilities available to firms in a wide range of
applications

STRATEGIC RATIONALES FOR

OUTSOURCING
51
▶ Accelerate Business Re-Engineering Benefits
▶ achieves re-engineering benefits more quickly by having
outsiders--who have already achieved world-class
standards--take over process
▶ Share Risks
▶ reduces investment requirements and makes firm more
flexible, dynamic and better able to adapt to changing
opportunities

STRATEGIC RATIONALES FOR

OUTSOURCING
52
▶ Free Resources for Other Purposes
▶ permits firm to redirect efforts from non-core activities
toward those that serve customers more effectively

STRATEGIC RATIONALES FOR

OUTSOURCING
53
▶ Greatest Value
▶ outsource only to firms possessing a core competence in terms of
performing the primary or support activity being outsourced
▶ Evaluating Resources and Capabilities
▶ don’t outsource activities in which the firm itself can create and capture
value
▶ Environmental Threats and Ongoing Tasks
▶ do not outsource primary and support activities that are used to neutralize
environmental threats or complete necessary ongoing organizational tasks

OUTSOURCING ISSUES
54
▶ Nonstrategic Team of Resources
▶ do not outsource capabilities that are critical to their
success, even though the capabilities are not actual
sources of competitive advantage
▶ Firm’s Knowledge Base
▶ do not outsource activities that stimulate the
development of new capabilities and competencies

OUTSOURCING ISSUES
55
▶ ETOP analysis (environmental threat and opportunity profile) is the process of gathering
information about events and their relationships within an organization’s internal and external
environments.
▶ ETOP involves dividing the environment into different sectors. Each sectors can be
subdivided into sub sectors. For example oil & gas sector can be broken down into
sub-sectors such as exploration & production, integrated oil & gas, oil equipment & services,
pipelines, renewable energy equipment, alternative fuels producers, oil equipment, services &
distribution, alternative energy etc.
▶ ETOP gives a clear picture to the strategies about each aspect of the business environment, the
various individual factors within each sector which affect the business favorably or otherwise.

ENVIRONMENT THREAT AND

OPPORTUNITY PROFILE (ETOP)
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Dr. Bhumika Achhnani, FMS, Marwadi University
ENVIRONMENT THREAT AND OPPORTUNITY PROFILE
(ETOP)
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Dr. Bhumika Achhnani, FMS, Marwadi University
Environmental Sectors Impact of each sector
Social (↑) Customer preference for motorbike, which are fashionable, easy
to ride and durable.
Political (→) No significant factor.
Economic (↑) Growing affluence among urban consumers; Exports potential
high.
Regulatory (↑) Two Wheeler industry a thrust area for exports.

Market (↑) Industry growth rate is 10 to 12 percent per year, For motorbike
growth rate is 40 percent, largely Unsaturated demand.

Supplier (↑) Mostly ancillaries and associated companies supply parts and
components, REP licenses for imported raw materials available.

Technological (↑) Technological up gradation of industry in progress. Import of

machinery under OGL list possible.

ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ETOP) FOR

A MOTOR BIKE COMPANY 58
Dr. Bhumika Achhnani, FMS, Marwadi University
▶ The strategic managers should keep focus on the following dimensions,
▶ Issue Selection: Focus on issues, which have been selected, should not be missed since there is a
likelihood of arriving at incorrect priorities. Some of the important issues may be those related to
market share, competitive pricing, customer preferences, technological changes, economic policies,
competitive trends, etc.
▶ Accuracy of Data: Data should be collected from good sources otherwise the entire process of
environmental scanning may go waste. The relevance, importance, manageability, variability and low
cost of data are some of the important factors, Which must be kept in focus.

ENVIRONMENT THREAT AND OPPORTUNITY

PROFILE (ETOP)
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Impact Studies: Impact studies should be conducted focusing on the various opportunities and
threats and the critical issues selected. It may include study of probable effects on the company’s
strengths and weaknesses, operating and remote environment, competitive position,
accomplishment of mission and vision etc. Efforts should be taken to make assessments more
objective wherever possible.
▶ Flexibility in Operations: There are number of uncertainties exist in a business situation and so a
company can be greatly benefited by devising proactive and flexible strategies in their plans,
structures, strategy etc. The optimum level of flexibility should be maintained.

ENVIRONMENT THREAT AND OPPORTUNITY

PROFILE (ETOP)
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ A set of factors that directly influences a company and its competitive
actions and responses.
▶ Interaction among these factors determine an industry’s profit potential.

● Threat of new entrants

● Power of suppliers
● Power of buyers
● Product substitutes
● Intensity of rivalry

INDUSTRY ENVIRONMENT
61
 PORTER’S FIVE FORCES MODEL OF
COMPETITION

▶ Identify current and potential competitors and determine

which firms serve them.
▶ Conduct competitive analysis.
▶ Recognize that suppliers and buyers can become
competitors.
▶ Recognize that producers of potential substitutes may
become competitors.

62
FIVE FORCES MODELg OF COMPETITION
ti n
p e
Th
C om rea
o ng s to
fN
A m irm ew
lry F En
i va tra
R nt
s

ers
Five Forces

ppli
Thr

of Su
of
eat o ucts
Prod

wer
f Su

Competition

g Po
bstit

ainin
ute

Barg
Bargaining Power of Buyers
63
▶ Barriers to entry

● Economies of scale
● Product differentiation
● Capital requirements
● Switching costs
● Access to distribution channels
● Cost disadvantages independent of scale
● Government policy
● Expected retaliation

THREAT OF NEW ENTRANTS

64
▶ A supplier group is powerful when:

● it is dominated by a few large companies

● satisfactory substitute products are not available to industry firms
● industry firms are not a significant customer for the supplier group
● suppliers’ goods are critical to buyers’ marketplace success
● effectiveness of suppliers’ products has created high switching costs
● suppliers are a credible threat to integrate forward into the buyers’ industry

BARGAINING POWER OF SUPPLIERS

65
▶ Buyers (customers) are powerful when:

● they purchase a large portion of an industry’s total output

● the sales of the product being purchased account for a significant portion of the seller’s annual
revenues
● they could easily switch to another product
● the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they
were to integrate backward into the seller’s industry

BARGAINING POWER OF BUYERS

66
▶ Product substitutes are strong threat when:

● customers face few switching costs

● substitute product’s price is lower
● substitute product’s quality and performance capabilities are equal to or
greater than those of the competing product

THREAT OF SUBSTITUTE PRODUCTS

67
▶ Intensity of rivalry is stronger when competitors:

● are numerous or equally balanced

● experience slow industry growth
● have high fixed costs or high storage costs
● lack differentiation or low switching costs
● experience high strategic stakes
● have high exit barriers

INTENSITY OF RIVALRY
68
▶ Common exit barriers include:

● specialized assets (assets with values linked to a particular business

or location)
● fixed costs of exit such as labor agreements
● strategic interrelationships (relationships of mutual dependence
between one business and other parts of a company’s operation, such
as shared facilities and access to financial markets)
● emotional barriers (career concerns, loyalty to employees, etc.)
● government and social restrictions

HIGH EXIT BARRIERS

69
▶ Strategic groups are sets of firms that follow similar strategies to one another
▶ A strategic group consists of a set of industry competitors that have similar characteristics to one another
but differ in important ways from the members of other groups
▶ Understanding the nature of strategic groups within an industry is important for at least three reasons.
▶ First, emphasizing the members of a firm’s group is helpful because these firms are usually its closest
rivals. When assessing their firm’s performance and considering strategic moves, the other members of a
group are often the best referents for executives to consider.

STRATEGIC GROUPS
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Second, the strategies pursued by firms within other strategic groups highlight alternative paths to
success. A firm may be able to borrow an idea from another strategic group and use this idea to improve
its situation.
▶ Third, the analysis of strategic groups can reveal gaps in the industry that represent untapped
opportunities.

STRATEGIC GROUPS
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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ To develop a strategic group map for an industry, the competitive factors for each of the two axes
must be selected. On the vertical axis, price is often the measurement used. A different parameter
that further differentiates the members of the industry is chosen for the horizontal axis.
▶ For the airline industry, for example, it could be the number of routes flown. It can be the breadth
of models offered by each car manufacturer in the automobile industry. The competitive factors
should be chosen based on the market characteristics that are to be examined, usually the most
important ones.

DESIGNING A STRATEGIC GROUP MAP

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Dr. Bhumika Achhnani, FMS, Marwadi University
▶ Once the various firms in the industry are plotted on the strategic group map,
the natural groupings of the companies can be determined and circled. The
stiffest competition in the industry typically happens within each strategic
group.
▶ Profitability between each group often varies. It is generally difficult to move
from one group to another, as mobility barriers exist hindering the ability of a
firm to impact the chosen competitive factors being measured.

DESIGNING A STRATEGIC GROUP MAP

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Dr. Bhumika Achhnani, FMS, Marwadi University
STRATEGIC GROUP MAP EXAMPLE 74
Dr. Bhumika Achhnani, FMS, Marwadi University
▶ McKinsey 7S model is a tool that analyzes firm’s organizational design by looking at7 key internal
elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if
they are effectively aligned and allow organization to achieve its objectives.
▶ The model can be applied to many situations and is a valuable tool when organizational design is at
question. The most common uses of the framework are:
▶ To facilitate organizational change.
▶ To help implement new strategy.
▶ To identify how each area may change in a future.
▶ To facilitate the merger of organizations.

MCKINSEY 7S MODEL
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Dr. Bhumika Achhnani, FMS, Marwadi University
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▶ In McKinsey model, the seven areas of organization are divided into the ‘soft’ and ‘hard’ areas.
Strategy, structure and systems are hard elements that are much easier to identify and manage
when compared to soft elements. On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create the sustained competitive
advantage.
▶ A sound strategy is the one that’s clearly articulated, is long-term, helps to achieve
competitive advantage and is reinforced by strong vision, mission and values. But it’s hard to
tell if such strategy is well-aligned with other elements when analyzed alone. So the key in 7s
model is not to look at your company to find the great strategy, structure, systems and etc. but
to look if its aligned with other elements.

MCKINSEY 7S MODEL
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▶ Structure represents the way business divisions and units are organized and includes the information of who is
accountable to whom. In other words, structure is the organizational chart of the firm. It is also one of the most
visible and easy to change elements of the framework.
▶ Systems are the processes and procedures of the company, which reveal business’ daily activities and how
decisions are made. Systems are the area of the firm that determines how business is done and it should be the
main focus for managers during organizational change.
▶ Skills are the abilities that firm’s employees perform very well. They also include capabilities and
competences. During organizational change, the question often arises of what skills the company will really
need to reinforce its new strategy or new structure.

MCKINSEY 7S MODEL
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▶ Staff element is concerned with what type and how many employees an organization will need and
how they will be recruited, trained, motivated and rewarded.
▶ Style represents the way the company is managed by top-level managers, how they interact, what
actions do they take and their symbolic value. In other words, it is the management style of
company’s leaders.
▶ Shared Values are at the core of McKinsey 7s model. They are the norms and standards that guide
employee behavior and company actions and thus, are the foundation of every organization.

MCKINSEY 7S MODEL
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▶ Identify the areas that are not effectively aligned
▶ Determine the optimal organization design
▶ Decide where and what changes should be made
▶ Make the necessary changes
▶ Continuously review the 7s

APPLYING THE 7S MODEL

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▶ The GE-McKinsey Matrix (a.k.a. GE Matrix, General Electric Matrix, Nine-box
matrix) is a portfolio analysis tool used in corporate strategy to analyze strategic
business units or product lines.
▶ This matrix combines two dimensions: industry attractiveness and the competitive
strength of a business unit into a matrix. Correspondingly, a business can direct its
business units. It can then determine where to invest, to hold their position, harvest or
divest.
▶ the GE-McKinsey Matrix uses multiple variables to determine the two dimensions:
▶ Industry attractiveness, and
▶ Competitive strength

GE MCKINSEY MATRIX
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▶ Industry Attractiveness
▶ When evaluating the business along this dimension, consider the long term growth potential, industry size,
industry profitability, entry and exit barriers, etc. Furthermore, evaluate the power of suppliers and buyers
as well as any other environmental factors that could influence industry attractiveness.
▶ In addition, consider your product or service, how they change over time, pricing and labor requirements.
▶ The vertical axis of this matrix – Industry Attractiveness – is divided into High, Medium and Low.
Industry attractiveness represents the profit potential of the industry for a business to enter and compete in
that industry. The higher the profit potential, the more attractive is the industry. An industry’s profitability
is affected by the current level of competition and future changes in the competitive landscape.

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▶ Competitive Strength
▶ When evaluating a business unit along this dimension, consider how it fares relative to its competitors within the industry. Some
factors that can help a business assess its competitive advantage in an industry are:
▶ Market share it commands
▶ Market share growth potential
▶ Brand awareness
▶ Profit margins of the business
▶ Customer loyalty and satisfaction
▶ Uniqueness of its products or services
▶ If the business has a competitive edge, consider whether its competitiveness is sustainable in the long-term or only temporary.
Finally, if the business has a sustainable competitive advantage, determine the duration that it can leverage its position in the
industry.
▶ The horizontal of this matrix – Competitive Strength – is divided into High, Medium and Low. This dimension measures the
business’s competitiveness among its rivals. This dimension indicates the business’s ability to compete in that industry. A
business’s strengths give it an advantage over its rivals.
▶ These strengths are often referred to as unique selling points (USP’s), firm-specific advantages (FSA’s) or as sustainable
competitive advantages.

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▶ Strategic implications
▶ The three degrees (High, Medium and Low) of Industry Attractiveness and
Competitive Strength provide 9 different strategic postures for a business. The
strategic actions to choose from are:
▶ Invest / Grow strategy
▶ Selectivity / Earnings strategy, and
▶ Harvest/Divest strategy

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▶ The matrix plots a company’s offerings in a four-square matrix, with the y-axis
representing the rate of market growth and the x-axis representing market share.
It was introduced by the Boston Consulting Group in 1970.
▶ The BCG growth-share matrix breaks down products into four categories,
known heuristically as "dogs," "cash cows," "stars," and “question marks.” Each
category quadrant has its own set of unique characteristics.

BCG GROWTH-SHARE MATRIX

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▶ Dogs (or Pets)
▶ If a company’s product has a low market share and is at a low rate of growth, it
is considered a “dog” and should be sold, liquidated, or repositioned.
▶ dogs can turn out to be cash traps, tying up company funds for long periods of
time. For this reason, they are prime candidates for divestiture.
▶ Cash Cows
▶ Products that are in low-growth areas but for which the company has a relatively
large market share are considered “cash cows,” and the company should thus
milk the cash cow for as long as it can. Cash cows, seen in the lower left
quadrant, are typically leading products in markets that are mature.

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▶ Stars
▶ Products that are in high growth markets and that make up a sizable portion of that
market are considered “stars” and should be invested in more. In the upper left
quadrant are stars, which generate high income but also consume large amounts of
company cash. If a star can remain a market leader, it eventually becomes a cash cow
when the market's overall growth rate declines.
▶ Question Marks
▶ Questionable opportunities are those in high growth rate markets but in which the
company does not maintain a large market share. Question marks are in the upper
right portion of the grid. They typically grow fast but consume large amounts of
company resources. Products in this quadrant should be analyzed frequently and
closely to see if they are worth maintaining.

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▶ The BCG Growth-Share Matrix considers a company's growth prospects and
available market share via a 2x2 grid. By assigning each business to one of these
four categories, executives can then decide where to focus their resources and
capital to generate the most value, as well as where to cut their losses.

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▶ The balanced scorecard allows managers to look at the business from four
important perspectives. (See the exhibit “The Balanced Scorecard Links
Performance Measures.”) It provides answers to four basic questions:
▶ The Balanced Scorecard Links Performance Measures
▶ How do customers see us? (customer perspective)
▶ What must we excel at? (internal perspective)
▶ Can we continue to improve and create value? (innovation and learning perspective)
▶ How do we look to shareholders? (financial perspective)

BALANCED SCORECARD
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▶ Any strategy, to be effective, must contain descriptions of financial aspirations,
markets served, processes to be conquered, and, of course, the people who will
steadily and skillfully guide the company to success.

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▶ Customer Perspective
▶ When choosing measures for the Customer perspective of the Scorecard, organizations must
answer three critical questions:
▶ Who are our target customers?
▶ What is our value proposition in serving them?
▶ What do our customers expect or demand from us?
▶ Internal Process Perspective
▶ In the Internal Process perspective of the Scorecard, we identify the key processes the firm
must excel at in order to continue adding value for customers and ultimately shareholders.
▶ Product development, production, manufacturing, delivery, and postsale service may be
represented in this perspective.

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▶ Employee Learning and Growth Perspective
▶ The objectives and measures in the Employee Learning and Growth perspective of the Balanced
Scorecard are really the enablers of the other three perspectives.
▶ Once you identify objectives, measures, and related initiatives in your Customer and Internal
Process perspectives, you can be certain of discovering some gaps between your current
organizational infrastructure of employee skills (human capital), information systems
(informational capital), and the environment required to maintain success (organizational capital).
▶ Employee skills, employee satisfaction, availability of information, and alignment could all have a
place in this perspective.
▶ Financial Perspective
▶ The objectives and measures in this perspective tell us whether our strategy execution — which is
detailed through objectives and measures chosen in the other perspectives — is leading to
improved bottom-line results.
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 THANK YOU!!

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